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IMF projects major global downturn, led by U.S.

The agency forecasts world economic growth to slow to 3.9% this year, 3% in 2009.

October 09, 2008|From the Associated Press

WASHINGTON — The world economy will slow sharply this year and next, with the United States probably sliding into recession, reflecting mounting damage from the most dangerous financial jolt in more than half a century.

The International Monetary Fund, in its World Economic Outlook released Wednesday, slashed growth projections for the global economy and predicted that the U.S. -- the epicenter of the financial meltdown -- would continue to lose traction.

"The world economy is now entering a major downturn in the face of the most dangerous shock in mature financial markets since the 1930s," the IMF said in its report.

The IMF projects that the global economy, which grew by a hardy 5% last year, will lose considerable speed, slowing to 3.9% this year. It is forecast to weaken even more -- to just 3% -- next year, marking the worst showing since 2002. In the past, the IMF has called growth of 3% or less the equivalent of a global recession.

The new projections come in advance of a gathering of the world's top economic powers Friday and the weekend meetings of the IMF and the World Bank. The financial crisis is likely to figure prominently in those discussions.

In the U.S., the economy, which grew by 2% last year, is projected to slow to 1.6% this year. Growth would screech to a virtual halt in 2009, barely budging at just 0.1%. That would mark the worst showing since 1991, when the country was pulling out of a recession.

"With a recession now looking increasingly likely, the key questions are, how deep will the downturn be, when will a recovery get underway and how strong will it be?" the IMF asked. Much will hinge on the effectiveness of U.S. steps to stabilize financial markets and get credit flowing more freely. Another important factor is whether these and other actions will stimulate spending by U.S. consumers, whose retrenchment is hurting the economy.

The IMF -- and many private economists -- believes that the U.S. economy will probably contract in the final three months of this year and the first three months of next year, meeting a classic definition of a recession. The economy's last recession was in 2001.

Germany's growth will slow to 1.8% this year, down from 2.5% last year, the IMF predicts. France's growth will weaken to just 0.8%, compared with 2.2% in 2007. Britain will see growth taper to 1%, down from 3% last year. Canada's growth will tail off to 0.7% this year, from 2.7% last year.

In Japan, growth will cool to just 0.7%, from 2.1% last year.

Global powerhouses China and India will are expected to see growth this year of 9.7% and 7.9%, respectively. Even if those projections prove correct, they would still mark downgrades from the blistering performances of last year.

Russia's economy should grow by a brisk 7% this year, down from 8.1% last year.

Brazil's booming growth is expected to cool a bit to 5.2% this year, from 5.4% last year. Mexico's growth will slow more sharply to 2.1%, from 3.2%.

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